Correlation Between Universal and Scandinavian Tobacco

Can any of the company-specific risk be diversified away by investing in both Universal and Scandinavian Tobacco at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Universal and Scandinavian Tobacco into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Universal and Scandinavian Tobacco Group, you can compare the effects of market volatilities on Universal and Scandinavian Tobacco and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Universal with a short position of Scandinavian Tobacco. Check out your portfolio center. Please also check ongoing floating volatility patterns of Universal and Scandinavian Tobacco.

Diversification Opportunities for Universal and Scandinavian Tobacco

0.33

Correlation Coefficient

Universal  Scandinavian Tobacco

Weak diversification

The 3 months correlation between Universal and Scandinavian is 0.33. Overlapping area represents the amount of risk that can be diversified away by holding Universal and Scandinavian Tobacco Group in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Scandinavian Tobacco and Universal is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Universal are associated (or correlated) with Scandinavian Tobacco. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Scandinavian Tobacco has no effect on the direction of Universal i.e., Universal and Scandinavian Tobacco go up and down completely randomly.

Pair Corralation between Universal and Scandinavian Tobacco

Considering the 90-day investment horizon Universal is expected to generate 17.52 times less return on investment than Scandinavian Tobacco. In addition to that, Universal is 1.24 times more volatile than Scandinavian Tobacco Group. It trades about 0.01 of its total potential returns per unit of risk. Scandinavian Tobacco Group is currently generating about 0.24 per unit of volatility. If you would invest  1,345  in Scandinavian Tobacco Group on December 24, 2024 and sell it today you would earn a total of  240.00  from holding Scandinavian Tobacco Group or generate 17.84% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	95.31%
Values	Daily Returns

Universal  vs.  Scandinavian Tobacco Group

Universal

Risk-Adjusted Performance

Very Weak

Over the last 90 days Universal has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of fairly stable basic indicators, Universal is not utilizing all of its potentials. The latest stock price fuss, may contribute to near-short-term losses for the sophisticated investors.

Scandinavian Tobacco

Risk-Adjusted Performance

Solid

Compared to the overall equity markets, risk-adjusted returns on investments in Scandinavian Tobacco Group are ranked lower than 18 (%) of all global equities and portfolios over the last 90 days. Despite nearly unsteady basic indicators, Scandinavian Tobacco reported solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Universal and Scandinavian Tobacco

The main advantage of trading using opposite Universal and Scandinavian Tobacco positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Universal position performs unexpectedly, Scandinavian Tobacco can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Scandinavian Tobacco will offset losses from the drop in Scandinavian Tobacco's long position.

The idea behind Universal and Scandinavian Tobacco Group pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Price Transformation module to use Price Transformation models to analyze the depth of different equity instruments across global markets.